Melcor REIT Announces $13.5 Million of Property Acquisitions and Bought Deal of $20.2 Million of Trust Units

EDMONTON, ALBERTA--(Marketwired - April 16, 2014) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES

Melcor Real Estate Investment Trust (TSX:MR.UN) (the "REIT") announced today that its board of trustees has approved the acquisition of two multi-tenant retail properties (together, the "Acquisitions") representing approximately 54,126 square feet of gross leasable area ("GLA") for an aggregate purchase price of approximately $13.50 million (exclusive of closing and transaction costs). The Acquisitions consist of (i) an 11,540 square foot retail complex developed by Melcor Developments Ltd. ("Melcor"), with construction completed in early 2013, and located in Airdrie, Alberta ("Kingsview Market Phase Three"); and (ii) a 42,586 square foot retail community strip centre substantially redeveloped in 2009 and located in Regina, Saskatchewan ("Market Mall"). The Acquisitions are to be acquired from Melcor, the REIT's external asset manager and property manager.

Darin Rayburn, Chief Executive Officer of the REIT, commented:

"We are pleased to announce this acquisition agreement with Melcor as it represents the first transactions through our proprietary acquisition pipeline and the continued execution of our growth strategy. Our primary objectives are to grow our income-producing assets portfolio and build value for our investors, and we continue to do that. Upon completion of this transaction, our portfolio GLA will have increased by 15% since our initial public offering. Our proven acquisition capability will serve us well in the future as we continue to vend in proprietary properties and look at opportunistic third party acquisitions. We are particularly pleased that this vend in will be immediately accretive on a leverage neutral basis and is a model we can use going forward."

The REIT also announced today that it has entered into an agreement to sell to a syndicate of underwriters co-led by RBC Capital Markets and CIBC, on a bought deal basis, 1,900,000 trust units ("Units") at a price of $10.65 per Unit (the "Offering Price") for gross proceeds to the REIT of $20,235,000 (the "Offering"). The REIT has granted the underwriters an option (the "Over-Allotment Option"), exercisable for a period of 30 days following the closing of the Offering, to purchase up to an additional 285,000 Units (being approximately 15% of the aggregate number of Units offered) to cover over-allotments, if any. The Offering is expected to close on or about May 7, 2014.

Net proceeds of the Offering (after deducting the underwriting fee and estimated offering expenses) are intended to be used by the REIT to partially fund the purchase price for the Acquisitions, to reduce the indebtedness under the REIT's revolving credit facility, for future acquisitions and for general trust purposes.

The Units will be offered in Canada pursuant to a short form prospectus to be filed with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada, pursuant to National Instrument 44-101 - Short Form Prospectus Distributions, and will be eligible for sale in the United States by way of private placement.

The Offering is subject to certain conditions, including, but not limited to, receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The Acquisitions are subject to certain conditions and there can be no assurance that either of the Acquisitions will be completed on their terms or at all. The REIT continues to actively pursue acquisition and investment opportunities.

Overview of the Acquisitions

The REIT intends to satisfy approximately $7.4 million of the purchase price of the Acquisitions by the issuance of 694,836 Class B LP Units (the "Class B Issuance"), each with an issue price equal to the Offering Price. On the closing of the Acquisitions, which is anticipated to occur shortly following the closing of the Offering, it is expected that Melcor will hold an approximate 48.1% effective interest in the REIT through ownership of 10,225,634 Class B LP Units of the Partnership (or an approximate 47.5% effective interest in the REIT if the Over-Allotment Option is exercised in full).

Following the closing of the Acquisitions, the REIT intends to obtain approximately $8.11 million of new mortgage financing in respect of Kingsview Market Phase Three and Market Mall, with the proceeds of such mortgage financing used to further reduce the indebtedness under the REIT's revolving credit facility. Based on current underlying bond yields, it is expected that such mortgages will have a weighted average interest rate of approximately 3.35% on closing and maturity dates of May 2019.

Both the Acquisitions and the Class B Issuance constitute a "related party transaction" under Multilateral Instrument 61-101 - Protection of Minority Shareholders in Special Transactions ("MI 61-101"). Pursuant to a decision of the Ontario Securities Commission dated March 25, 2014, the REIT has been granted exemptive relief from certain of the "related party transaction" requirements of MI 61-101 such that, subject to certain conditions, the REIT is exempt from the minority approval and valuation requirements for related party transactions that would have a value of less than 25% of the REIT's market capitalization, if the Class B LP Units held by Melcor and/or any subsidiary thereof are included in the calculation of the REIT's market capitalization.

Description of Acquisition Properties

The Acquisition Properties consist of two retail properties, one located in the Calgary, Alberta region, and one located in Regina, Saskatchewan; with approximately 54,126 square feet of GLA. The following is a description of the Acquisition Properties:

Kingsview Market Phase Three, located in Airdrie, Alberta, a suburb of Calgary, is an 11,540 square foot multi-tenant retail complex developed by Melcor, with construction completed in early 2013. This is an additional phase of Kingsview Market, a retail centre containing 36,003 square feet of GLA, purchased by the REIT at the time of the IPO. As at April 1, 2014, the property was 100% leased, and was occupied by seven tenants.

Key Tenants

Area Leased
(sq. ft.)

Percentage of
Total GLA

Lease Expiry Date

Bank of Montreal

3,388

29.32

%

January 2024

MIO Stone Grill and Sushi

2,132

18.45

%

May 2023

Starbucks

1,589

13.75

%

June 2023

Market Mall, 303-359 Albert Road, Regina, Saskatchewan

Market Mall is a retail community strip centre situated on a 2.37-acre site, containing 42,586 square feet of GLA and surface parking for 152 vehicles (3.57 stalls per 1,000 square feet). The building, constructed in 1981, was substantially redeveloped by Melcor in 2009. As at April 1, 2014, the property was 100% leased, and was occupied by fourteen tenants.

Key Tenants

Area Leased
(sq. ft.)

Percentage of
Total GLA

Lease Expiry Date

Regina Public Library

11,625

27.3

%

June 2027

Altus Group

10,460

24.6

%

April 2019

Regina Duplicate Bridge Club

4,000

9.4

%

July 2018

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The Units have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

About Melcor REIT

Melcor REIT is an unincorporated, open-ended real estate investment trust. Melcor REIT owns, acquires, manages and leases quality retail, office and industrial income-generating properties with exposure to high growth Canadian markets. Its portfolio is currently made up of interests in 30 properties representing approximately 1.76 million square feet of gross leasable area located across Alberta and in Regina, Saskatchewan and Kelowna, British Columbia. For more information, please visit www.melcorREIT.ca.

Forward-Looking Statements

This press release contains "forward-looking information" as defined under applicable Canadian securities law ("forward-looking information" or "forward-looking statements") which reflect management's expectations regarding objectives, plans, goals, strategies, future growth, results of operations, performance, business prospects and opportunities of the REIT. Statements other than statements of historical fact contained in this press release may be forward-looking information. Some of the specific forward-looking statements in this press release include, but are not limited to, statements with respect to: the closing of the Offering and the Acquisitions and the expected terms and closing dates thereof; the REIT's intended use of proceeds of the Offering; the REIT's plans for financing the Acquisitions, including expected interest rates for new property-level mortgages and the issuance of Class B LP Units to Melcor; the impact of the Acquisitions on the REIT's AFFO per Unit, payout ratio, GLA and similar operating or financial metrics; the REIT's pursuit of acquisition and investment opportunities; and expectations, projections or other characterizations of future events or circumstances and the future economic performance of the REIT. The REIT has based these forward-looking statements on its current expectations and assumptions about future events, which may prove to be incorrect.

When relying on forward looking statements to make decisions, readers are cautioned not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results and do not take into account the effect of transactions or other items announced or occurring after the statements are made. All forward-looking information in this press release speaks as of the date of this press release. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. The REIT does not undertake any obligation to update any such forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable law.

Non-IFRS Measures

Adjusted funds from operations ("AFFO") is a key measures of performance used by real estate businesses. However, such measure is not recognized under International Financial Reporting Standards as issued by the International Accounting Standards Board and as adopted by the Canadian Institute of Chartered Accountants in Part I of The Canadian Institute of Chartered Accountants Handbook - Accounting, as amended from time to time ("IFRS") and does not have a standardized meaning prescribed by IFRS. Management believes that AFFO is a supplemental measure of a Canadian real estate investment trust's performance and the REIT believes that it is a relevant measure of the ability of the REIT to earn and distribute cash returns to investors in Units and to evaluate the REIT's performance.

"AFFO" is defined as FFO (as defined below) subject to certain adjustments, including: (i) amortization of fair value mark-to-market adjustments on mortgages acquired; (ii) interest rate subsidy amounts received; (iii) amortization of deferred financing and leasing costs; (iv) adjusting for any differences resulting from recognizing property revenues on a straight-line basis; and (v) deducting a reserve for normalized maintenance capital expenditures, tenant inducements and leasing costs, as determined by the REIT. Other adjustments may be made to AFFO as determined by the trustees of the REIT in their discretion.

"FFO" is defined as net income in accordance with IFRS, excluding most non-cash expenses, namely: (i) fair value adjustments to investment properties; (ii) gains (or losses) from sales of investment properties; (iii) amortization of tenant incentives; (iv) fair value adjustments, interest expense and other effects of redeemable units classified as liabilities; (v) acquisition costs expensed as a result of the purchase of a property being accounted for as a business combination; and (vi) deferred income tax expense.

FFO and AFFO should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS as indicators of the REIT's performance. The REIT's method of calculating FFO and AFFO may differ from other issuers' methods and accordingly may not be comparable to measures used by other issuers.